TODAY’S S&P 500 SET-UP – June 25, 2014
As we look at today's setup for the S&P 500, the range is 37 points or 1.28% downside to 1925 and 0.62% upside to 1962.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH:
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
Takeaway: Right now may be a bit early, but gold is shaping up to be a compelling long idea heading into 2014.
(Editor's note: This macro note "Gold: Is It Time to Get Back In on the Long Side?" was originally published on November 26, 2013. Hedgeye remains the non-consensus bull on Gold. It is up over +9% since 12/31/13.
CONCLUSION: Keith summed up our latest thoughts on gold in a brief @HedgeyeTV video this afternoon: http://www.youtube.com/watch?v=COWDQhsI3jI. The note below expands upon those high-level thoughts in greater detail, including our updated cyclical outlook for the US economy.
Since the start of NOV, Keith has been trading gold with a bullish bias in our Real-Time Alerts signaling product. This has been a marked shift from having traded gold with a largely bearish bias since late 2011.
From a fundamental perspective, we now anticipate the emergence of distinct tailwinds that are increasingly likely to materialize over the intermediate term. As we detailed in last Friday’s Early Look, we think the most probable cyclical GIP outlook for the US economy is as follows:
With regards to points #1 and #2, the confluence of #GrowthSlowing and #InflationAccelerating puts an economy squarely in Quad #3 on our GIP model:
Historically, moves by the US into Quad #3 have been bullish for the price of gold, as both the US dollar and real interest rates tend to decline in this economic “state”; the opposite holds true on a move into Quad #1 (i.e. #GrowthAccelerating as #InflationAccelerates), which is where both the reported data and consensus expectations have tracked throughout much of 2013. Given where we’ve been on growth and inflation for much of the year, it would be modest to say that we are not surprised to see gold down almost -26% YTD (we’ve been the bears on gold for much of the past 12-18M).
Again, we think monetary and fiscal policy uncertainty (mostly monetary policy uncertainty) will weigh on consumer and business confidence and we’re already starting to see that in the high-frequency data:
That brings us squarely to point #3 as laid out above: we think Janet Yellen will prove to be the Mother-Of-All-Doves and, perhaps more importantly, we don’t think consensus agrees with this view. The latter point can be seen squarely in the aggregate futures and options positioning amongst speculators (the market has swung heavily into a net short bet on LT Treasuries):
With regards to how the Fed might get there, we continue to think they are out-to-lunch (i.e. way too high) with respect to their 2013E and 2014E GDP growth forecasts. Moreover, they are well below consensus on their 2013 and 2014 inflation estimates and the confluence of both gives them scope to:
There are two caveats to the aforementioned charts:
All told, we think a waning threat of tapering, at the margins, is likely to serve as a positive catalyst for the price of gold – and other inflation hedge assets – over the intermediate term. The following chart, put together by our very own Christian Drake, highlights the causal relationship between #TaperTalk and the precipitous decline in the price of gold over the LTM:
Are you prepared for Janet Yellen to be a lot more dovish than the market currently thinks she will be? History would side with those of you who are, in fact, getting prepared for just that. The following is an excerpt from a late-2005 speech she gave on the housing bubble to the Conference on US Monetary Policy:
CLICK HERE to access the full transcript of the speech.
Alas, if you thought her predecessor was cool with inflating the bond bubble and all the other intended and unintended #BernankeBubbles, then, by the looks of it, you haven’t seen anything yet. That is, of course, assuming a 67-year-old woman who’s been doing and saying the same exact things for ~50 years doesn’t have a massive change of heart upon taking office as the world’s most important government official – if not human being.
In the history of central planning, crazier things have happened, though. Stay tuned…
Associate: Macro Team
Takeaway: 60% voted for Clear Spirits, 40% voted for Brown Spirits.
Hedgeye’s Consumer Staples team is interested in consumption trends of spirits as part of its alcoholic beverage coverage universe. So for today’s poll, we wanted to know what you're consuming more of this year; brown spirits (whisky, scotch, bourbon, brandy, cognac) or clear spirits (vodka, gin, rum, tequila, sake). Our poll question was straightforward:
Are you drinking more brown spirits or clear spirits this year versus last?
At the time of this post, 60% voted for Clear Spirits, 40% voted for Brown Spirits.
Those who voted for Clear Spirits had this to say:
Voters who chose Brown Spirits had this to say:
Upon further review of Darden’s disastrous 4Q earnings release and outlook for FY15, we have updated some of our thoughts on the company’s vision for the future. To be clear, following the divestiture of Red Lobster, we believe the company will struggle to pay its current dividend in FY16 without levering up.
For the sake of shareholders, Starboard must get control of the Board on September 30th. Without a change of this magnitude, shareholders can expect more of the same: dismal returns, value destructive initiatives, and a complete disregard for shareholder concerns.
We’ve attached our commentary in a 12 page slide deck below.
Call with questions.
The table below lists our current investment ideas as well as a list of potential ideas we are in the process of evaluating (watch list). We intend to update this table regularly and will provide detail on any material changes.
6/25/14 GIS Earning Call 8:30am EST
6/25/14 TAP Analyst Meeting
6/26/14 PMI Investor Day 1
6/26/14 MKC Earnings Call 8:00am EST
6/26/14 CAG Earnings Call 9:30am EST
6/27/14 PMI Investor Day 2
XLP remains bullish on immediate term TRADE and intermediate term TREND durations from a quantitative set-up.
The Hedgeye U.S. Consumption Model has shown steady improvement over the past month, with 5 of the 12 U.S. Economic Indicators flashing green.
Despite the bullish quantitative set-up for the sector, we continue to believe that the group is facing numerous headwinds, including:
In the charts below we look at the largest companies by market cap in the Consumer Staples space from both a quantitative perspective and fundamental aspect where we can offer one. As you will see over time, sometimes our fundamental view does not align with the quantitative setup (though not often).
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